3 Powerful Ways to Cut Your Lifetime Debt Payments

American author Henry David Thoreau once said, “The price of anything is the amount of life you exchange for it.” When it comes to the price of debt, Americans typically spend a lifetime exchanging labor for interest payments. The total cost of these payments can easily run into the six figures, but there are simple actions you can take to reduce your debt burden.

The average consumer will pay an estimated $279,002 over their lifetime in interest payments alone, according to a new report from Credit.com, an independent company run by credit experts. The amount of interest varies across the nation based on credit scores, cost of housing, and average debt levels. Residents of Iowa enjoy the lowest interest burden at $129,394, while Washington, D.C. suffers the most at $451,890. California is a distant second with $368,745 in lifetime interest payments.

Despite the Great Recession causing Americans to curtail borrowing, household debt has now increased in four of the past five quarters, according to the latest figures from the Federal Reserve. Total household debt, which includes mortgages, student loans, credit cards, and auto loans, reached $11.71 trillion at the end of September, up from $11.28 trillion a year earlier and the highest level since 2011.

Let’s take a look at three powerful ways to dramatically reduce your lifetime interest expenses.

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1. Downsize your mortgage

Housing is easily one of the biggest expenses we have in life. Washington, D.C. tops the list of lifetime interest payments primarily because the average new mortgage balance totals about $462,000 — nearly $100,000 more than the next highest location. When shopping for a house, recognize the difference between needs and wants. You may want a McMansion that’s suitable for a magazine cover, but you only truly need shelter in a safe location. Remember, just because a bank approves you for a certain amount, doesn’t mean you have to spend that much.

If you already have a mortgage, you may be able to cut interest expenses by refinancing. Mortgage rates continue to remain at historic lows. In fact, Bankrate reports that the 30-year fixed mortgage rate recently dropped to 3.80%, while the 15-year fixed mortgage rate declined to 3.11%. A year earlier, the average 30-year fixed mortgage rate was 4.57%. This difference results in savings of roughly $90 per month for anyone refinancing now.

Refinancing can be a headache in today’s banking environment, but homeowners can also reduce their interest costs by making extra principal payments, which is commonly allowed by lenders at no extra fee. For example, paying an extra $200 on a $200,000 mortgage over 30 years with a fixed rate of 4% will save the homeowner nearly $45,000 in interest payments. Even if you can’t afford a couple hundred extra dollars each month, any amount you apply toward the principal in addition to the regular payment will help reduce interest costs in the long run.

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2. Rethink your transportation needs

Somewhere between the desire for convenient transportation and the perils of consumerism, Americans allowed automobiles to take precedence over their future needs. Instead of building wealth or saving for retirement, millions of drivers try to impress the Joneses by financing expensive new cars that are beyond their true budgets. In reality, the Joneses probably don’t even know who you are and have enough debt of their own to worry about.

TrueCar.com reports that the estimated average transaction price for light vehicles in the United States hit $32,957 in 2014, up $778 from a year earlier, and more than half of the annual income of the median U.S. household. Making matters worse, consumers are using debt to fuel their transportation desires, increasing their debt burden. The average loan amount for a new vehicle jumped $1,080 year-over-year to $27,799 in the third quarter of 2014, a new all-time high.

Lower payments on a dependable used car allows you to reduce interest costs and save money on property taxes. If you skip payments altogether and pay cash for used cars costing $15,000 or less that you keep for 10 years at a time, you’ll have an even easier time reducing your interest expenses.

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3. Eliminate credit card debt

The average American household owes $6,870 in credit card debt, according to the latest analysis from CardHub.com. Piling new high-interest debt on top of last year’s high-interest debt is not a good idea. If you have consumer debt, do yourself a favor: stop digging a deeper hole! More uncontrolled spending and debt will not only add to your total debt load but also increase interest expenses.

The snowball approach is one of the most popular methods for debt reduction. Breaking conventional wisdom, this strategy ignores interest rates. Pay the minimum amount required on all credit card balances except the smallest. Place as much money as you can toward the smallest balance until it’s completely paid off. Then take the money you were using on that card to apply it toward the next smallest balance until that one is paid off as well. Repeat this process until you have zero credit card debt.

This approach is best used for people who get discouraged easily. Sending the majority of your monthly debt repayment to the credit card balance with the highest interest rate is more efficient, but it’s called personal finance for a reason. Some people need the satisfaction of paying off balances to keep them motivated. Use what works for you.